(left to right: David Frost, Partner; Claire Sung, Partner; McCarthy Tétrault, LLP)
The environmental, social and governance (ESG) and sustainability landscape in Canada is currently undergoing a seismic shift that remains unsettled due to changing market expectations and priorities, turbulent geopolitical and macroeconomic events, a continuing rise in stakeholder activism and litigation, and changing regulations that are reflective of the current state of uncertainty. In the past 12 months alone, there have been a number of key legal, policy and market developments in this area, including new rules governing ‘greenwashing’ and a push towards building a standardized reporting framework in Canada, followed by an indefinite pause by the Canadian securities regulators in the development of their new climate-related disclosure rules against the backdrop of this seismic shift.
Here is a snapshot of some of the key developments in the past 12 months:
1. More Stringent Enforcement against Greenwashing under the Competition Act
Greenwashing has been a hot-button issue with the increase over the past decade in corporate net-zero emission pledges amid the backdrop of an absence of a consistent or standardized reporting framework, metrics and audit/assurance process across jurisdictions. ‘Greenwashing’ refers to false, misleading or unsubstantiated claims made by businesses about their environmental and social impact. The United Nations identifies a few of the most common greenwashing tactics used globally on its Climate Action webpage, including: claiming to be on track to reduce a company’s polluting emissions to net zero when no credible plan is actually in place; being purposely vague about a company’s operations or materials used; applying intentionally misleading labels such as ‘green’ or ‘eco-friendly’, which do not have standard definitions; and emphasizing a single sustainability attribute of a product while ignoring other polluting activities or impacts. Greenwashing misleads investors, consumers and other stakeholders about the true environmental benefits of a product or the sustainability practices of a business.
To better protect against greenwashing, effective as of June 20, 2024, the Canadian Competition Bureau introduced new, more stringent rules under the Competition Act that, taken together, require businesses to back up their environmental claims or face legal consequences. The Competition Act, as amended, now explicitly prohibits greenwashing and requires businesses to substantiate environmental claims about a business or product in accordance with internationally recognized methodologies. It also imposes a monetary penalty for non-compliance of up to 3% of worldwide revenues and, as of June 20, 2025, allows the public to bring legal action directly against businesses to challenge greenwashing claims in front of the Competition Tribunal. While the Competition Tribunal has ultimate discretion to accept and adjudicate an action if doing so would be “in the public interest”, this arguably heightens the risk of litigation from a broader scope of potential litigants.
Stricter scrutiny of, and enforcement against, environmental marketing claims is already sending a ripple effect down not only how a company talks about and sets its sustainability goals and practices, but also how investors make their investment decisions in a business and green funds and how banks structure their lending practices.
2. Building a Standardized ESG Reporting Framework in Canada
There have been a number of regulatory developments in 2024 and early 2025 that aimed to build a standardized ESG and sustainability reporting framework, including the following:
- In October 2024, the Government of Canada announced plans to mandate climate-related financial disclosures for large private companies incorporated federally under the Canada Business Corporations Act, with the stated aim to help investors better understand how large businesses in Canda are thinking about and managing risks related to climate change, ensuring that capital allocation aligns with the realities of a net-zero economy. The government stated that it will seek to harmonize its regulations with those that will be required for public companies by securities regulators.
- In December 2024, the Canadian Sustainability Standards Board (CSSB) adopted its first Canadian Sustainability Disclosure Standards – CSDS 1, General Requirements for Disclosure of Sustainability-related Financial Information and CDSD 2, Climate-related Disclosures (collectively, the CSSB Standards). The CSSB Standards are based on the global baseline standards IFRS S1 and IFRS S2 of the International Sustainability Standards Board, with minor modifications made to fit within the Canadian context. The CSSB stated that its aim in adopting the CSSB Standards is to bring consistency, comparability and transparency to sustainability reporting, giving investors and other stakeholders decision-useful information. The CSSB Standards took effect for voluntary adoption in annual reporting periods starting on January 1, 2025, with the decision left to governments and regulators as to whether to mandate the CSSB Standards in Canada.
- In March 2025, the Office of Superintendent of Financial Institutions (OSFI) released the final version of Guideline B-15: Climate Risk Management (Guideline B-15) applicable to federally regulated financial institutions (FRFIs). The climate-related disclosure framework under Guideline B-15 was updated to align with the CSSB Standards to ensure they remain interoperable. Guideline B-15 is mandatory for FRFIs. OSFI stated that its aim is to support FRFIs in developing greater resilience to, and management of, climate-related risks. The timeline for implementation of the various requirements in Guideline B-15 varies based on the nature of the disclosure and the business of the FRFI.
3. The Canadian Securities Regulators Press Pause on Proposed Climate-Related Disclosure Framework
While there have been strong tailwinds in 2024, ushering Canada closer to a standardized ESG framework, this strong push has been facing headwinds in 2025 with recent developments in the U.S. and globally. In April 2025, the Canadian Securities Administrators (CSA) announced that they are pausing their work on the development of a new mandatory climate-related disclosure rule and amendments to the existing diversity-related disclosure requirements, citing as reasons for this pause the rapidly and significantly shifting global economic and geopolitical landscape and increased uncertainty and rising competitiveness concerns for Canadian public companies. This comes on the heels of the announcement by the U.S. Securities and Exchange Commission in March 2025 that it had voted to end its defence to mounting legal challenges brought against its mandatory climate-related disclosure rules that were adopted a year earlier, thereby making it unlikely that these rules will remain. Enforcement of these rules was on hold pending litigation.
The CSA stated that they will monitor domestic and international regulatory developments with respect to climate-related and diversity-related disclosures and expect to revisit both projects in the future. Meanwhile, they will continue to monitor disclosure practices and work to address any misleading disclosure, including greenwashing. A helpful reminder from the CSA is that climate-related risks are a mainstream business issue and securities legislation already requires a public company to disclose material climate-related risks affecting its business in the same way that it is required to disclose other types of material information.
The CSA’s decision to press pause on their proposed climate-related disclosure rule against the backdrop of a turbulent geopolitical landscape leaves great uncertainty as to when a truly harmonized and standardized sustainability regulatory framework will become mandatory in Canada. The CSSB Standards will not become mandatory until adopted by the CSA for public companies in Canada, and the Government of Canada’s plans to mandate corresponding climate-related financial disclosures for large private companies may then be put on indefinite hold.
While companies wait to see how the shifting tides settle and monitor the enforcement trends of some of the new rules that came into effect in the past 12 months, some of the concrete actions that a company can take at this time are to: continue to track new developments in this area across the jurisdictions in which it operates and any shifting market expectations, including expectations of its own investors and other stakeholders; refine its ESG and sustainability priorities and risk matrix accordingly; review existing sustainability disclosure for accuracy and materiality; and create or maintain a robust and integrated reporting and assurance process for disclosure, measurement and compliance.
David Frost is a Partner at McCarthy Tétrault LLP. This article was written by Claire Sung, Partner, Associate at McCarthy Tétrault LLP.